Riaz Haq writes this data-driven blog to provide information, express his opinions and make comments on many topics. Subjects include personal activities, education, South Asia, South Asian community, regional and international affairs and US politics to financial markets. For investors interested in South Asia, Riaz has another blog called South Asia Investor at http://southasiainvestor.blogspot.com and a YouTube video channel https://www.youtube.com/channel/UCkrIDyFbC9N9evXYb9cA_gQ

Thursday, September 16, 2010

Pakistan Needs Exports and Investments to Drive Economy

Gross domestic product (GDP) is calculated by adding up public and private consumption, investments and net exports (exports-imports). Some of the major world economies, most notably Germany and China, are led by exports, while others, such as United States, United Kingdom, India and Pakistan, are primarily domestic consumption driven.

With almost 80% of its GDP from consumption, Pakistan has particularly heavy reliance on domestic public and private spending for its economic health. This is much higher than the US consumption accounting for over 70% of its economy, and India's 60%.

As Pakistan's GDP has more than doubled over the last decade, its FDI has increased dramatically and its exports have grown at 16% CAGR till 2007, the consumption component has continued to be stubbornly high at about 80%, with about 20% of it coming from investments and exports. By contrast, India's consumption component has declined from 80% to 60% with its investment and export components rising to more than 30% during the same period.

While the rest of the developed economies stagnate, the German formula seems to be working well, with exports driving the nation’s strong recovery. The German economy grew 2.2 percent in the second quarter from the first, yielding an annualized growth rate of about 9 percent that puts it on a footing with emerging markets like China and India.

In spite of the fact that about 80% of Pakistan's GDP depends on domestic consumption, the nation has been highly vulnerable to external shocks related to the need for imports, particularly the oil price volatility. Energy accounts for about a third of Pakistan's imports, and as the speculators drove oil prices to over $150 a barrel in 2008, the nation found itself unable to pay for imports, and sought bailout by the International Monetary Fund in 2008.

While the country was moving rapidly towards the IMF, former economic adviser Prof. Ashfaque Hasan Khan recalls that Pakistan's ministry of finance had prepared the plan to bring $4 billion by June 30, 2008 through four transactions. A kick-off meeting was scheduled on April 23, 2008 at the ministry to give a final touch to the various roadshows. These transactions were canceled on April 20, 2008. Who ordered the cancellation of $4 billion transaction? This cancellation prompted the latest balance of payment crisis and the rest became history.

Since the major missteps by the Zardari government in 2008, the economic crisis has worsened as the investors have pulled out and business confidence plummeted amidst serious security concerns raised by the Taliban insurgency in the country. It has also hurt Pakistan's exports. The recent devastating floods have added to the already serious economic woes. The only positive news has been the rising remittances by overseas Pakistanis which increased to nearly $9 billion last year.

Several East Asian and South East Asian nations faced a similar financial crisis in 1997 which required IMF bailout. Since the 1997 crisis, most of these Asian nations have significantly expanded their exports and built up large dollar reserves to deal with external shocks effectively. In addition, the Association of South East Asian Nations (ASEAN) has banded together with China, South Korea, and Japan to form the "ASEAN Plus Three" financial grouping. This arrangement is designed to enable member countries to swap reserves if speculators again target their currencies.

In addition to reviving the national economy from its current slump, the biggest long-term challenge for Pakistan's economic leadership is to improve the nation's ability to deal with external and internal shocks. This will require learning from the experience of India or other Asian economies in building sufficient internal revenue base for public expenditure, attracting greater foreign investment, expanding and diversifying exports and strengthening hard currency reserves. Inability to deal with these challenges will doom Pakistan to perpetual dependence on IMF and consequent loss of sovereignty to it.

But on a serious note this post is more of a 'something needs to be done' type of a post.

If Pakistan wants to build a sound economy etc etc a pre requisite is a sound industrial base with corporations that can compete with the best in foreign countries.The way India's crompton greaves keeps beating ABB for contracts in the EU,or TCS's BANCS CBS could beat Temenos and Misys for Bank of China's CBS requirement...

Free trade is a myth.It works in tiny countries like Singapore and Hong Kong(now part of China) but it has NEVER helped a major country industrialize.

EVERY country that has industrialized after the UK including Germany and the USA has done it behind high tarrif walls without exception.This invariably means consumers sacrificing choice and having to put up with shoddy products for a generation as the domestic industry learns the ropes,this is a price well worth paying.

Now tarriffs/non tarrif barriers are of several types :1.Import duties2.Standards3.Access to distribution networks4.Other legal regulations

But the thing is you need a domestic industry and technocratic elite to lobby for this.

The basic difference between the congress and the muslim league was that congress was financed by the Industrialists who wanted high tarriffs and government contracts,which is why Congress had no trouble smashing the Indian feudals in the 1950s itself.

Pakistan's political edifice on the other hand still depends on the patronage of feudals who have now diversified into low end industries sugar,textiles etc

The thing is it is very difficult to envisage feudals who ultimately control Pakistan's industry to lobby the Pak government for the above..

anon: "The basic difference between the congress and the muslim league was that congress was financed by the Industrialists who wanted high tarriffs and government contracts,which is why Congress had no trouble smashing the Indian feudals in the 1950s itself."

I agree!

Some of the large industrialists, particularly Tata, benefited greatly from Nehru's protectionist policies, while Nehru dismantled the feudal system in India. The downside of it has been that very powerful industrialists and extremely weak rural economy with widespread poverty, farmers' suicides and extreme income inequality.

In Pakistan, Bhutto did the opposite...he destroyed the nascent industrial base that was created in the 1960s by Ayub Khan, and chose to side with his feudal friends by not carrying out land reform.

Bhutto's nationalization of 1970s has left deep scars among Pakistani industrialists who have not been making long term investments necessary to industrialize the country, make it self-sufficient and increase higher-value manufactured exports.

KARACHI: Net foreign investment in the country fell 34.1 percent to $267 million in the first two months of the fiscal year 2010-11 (FY11) as compared with $405.4 million in the same period last year, the State Bank of Pakistan said on Friday. Out of the total foreign investment, foreign direct investment (FDI) fell 50.2 percent in July and August to $171.4 million from $344.5 million in the same period last year, the central bank said. A worsening security situation, with a Taliban insurgency in the country’s northwest, coupled with chronic power shortages has put off investors, analysts say. There was a net inflow of $95.6 million in the first two months of the FY11, as compared with a net inflow of $60.9 million in the same period last year. On monthly basis, FDI to the country witnessed a decline of 31 percent in the month of August 2010 to stand at $69.5 million as compared to $101.9 million in the previous month. According to the latest data, the foreign private investment recorded a decline of 18.49 percent as it dropped by $26.6 million to stand at $117.2 million as compared to $143.8 million last month. However, portfolio investment reached $47.7 million in the second month of the current fiscal year as compared to $41.8 million in the first month, showing an increase of 14.11 percent. An International Monetary Fund (IMF) emergency loan package agreed in November 2008 helped Pakistan avert a balance of payments crisis and shore up reserves. It received the fifth tranche of $1.13 billion of the IMF loan of $11 billion in May and Pakistan and IMF authorities are going to meet in November to discuss the release of the sixth tranche. The IMF on Wednesday approved as expected $451 million in emergency funding for Pakistan to help the country rebuild from devastating floods. This was separate from the $11 billion IMF program

'The downside of it has been that very powerful industrialists and extremely weak rural economy with widespread poverty, farmers' suicides and extreme income inequality.'

I don't see how having a strong industrial base hinders agro development.

There are certain unique sociological issues in India like caste system etc but sacrificing heavy industry for the lure of short term growth and quick profit in agro based industries is a very short sighted thing to do IMHO.

Incidentally Indian yield/hectare is two to three times that in Pakistan.This is possible because of high quality region specific hybrid seeds developed by CSIR as well as massive quantities of cheap fertilizers and high quality farm equipment produced by Indian industry like Mahindra and Mahindra.

Though it is in turn only half the yield per hectare in China.

In some states like Gujarat Agriculture is growing at 9% pa due to companies like Parle Agro doing massive value addition to the farm produce in situ.

Inequality is inevitable in fast developing countries. China which is uniracial has a much higher gini coefficient than India does but the difference is that 250 mn Chinese who live on less than $1/day and 100mn who survive on less than $0.5 are all but invisible to the outside world.There are no mandrin equivalents of 'Peepli live'.

This is because workers who shift to industry see their productivity leap ahead of the people who they have left behind in the villages creating very high inequality only over 2-3 generations do the benefits of industrialization trickle down to everyone.

I don't know why u are so obsessed with FDI.Japan and South Korea actively discouraged FDI as a matter of state policy.

What matter's is investment/GDP I would any day prefer the investment of crompton greaves or L&T to build transformers and relays rather than Foreign investments of ABB,AREVA,Siemens.Which I am pleased to report is increasingly the case.

FDI as a source of technology is a myth nobody gives technology most FDI units are screw-driver assembly operations with critical components flown in from abroad.

How has FDI of Hino,Japan helped pakistan's truck industry??

Protectionism and tax breaks on the other hand has helped India build a world class truck industry.

Check these out:TATA:http://i69.in/news/tata-world-truck-tata-motors-new-trucks.php

anon: "I don't see how having a strong industrial base hinders agro development."

The fact is that while big industrialists like Tata and Birla had state protection through high tariffs and other govt benefits, the poor rural farmers were given a small piece of land via land reform without much help. The result is the phenomenon of extreme poverty and hundreds of thousands of farmers' suicides in India.

anon: "China which is uniracial has a much higher gini coefficient than India does but the difference is that 250 mn Chinese who live on less than $1/day and 100mn who survive on less than $0.5 are all but invisible to the outside world."

This is incorrect. China has inequality, but it does not have high rates of deep and abject poverty and hunger than pervades India, with its world's largest population of poor, hungry and illiterate citizens.

anon: "I don't know why u are so obsessed with FDI.Japan and South Korea actively discouraged FDI as a matter of state policy."

Unlike Pakistan with its paltry 17% savings rate, Japan and South Korea have among the highest savings rates. Pakistan needs external capital which ensure greater investments and access to markets of the investing countries..similar to the FDI in China by US companies who take most of the exports to western markets through intra-company trade. .

This is incorrect. China has inequality, but it does not have high rates of deep and abject poverty and hunger than pervades India, with its world's largest population of poor, hungry and illiterate citizens

China is 15 years ahead of the curve of India.It still has the second highest levels of poor and illiterate citizens in the world.

We don't know how 250 mn chinese who live on less than$1 /day live as they are effectively blocked from the outside and indeed most of china due to the internal passport system.You think their want and deprivation levels are lesser than the Indians who live on less than $1 a day that is your opinion but there is no way for you or anyone else to verify their living standards.

Their mercantalist trade model is also coming under severe strain,there is serious talk of a coordinated 15-20% duty on china to compensate for the artificially rigged yuan.

Investments in China are state directed with very little corelation with rate of returns,there are 60mn vacant housing units in china,they are building 15,000kms of high speed rail in a country with per capita income of around $3500.HSR loses money in France and Germany with $40,000 per capita incomes,most chinese HSR's run near empty because an average Chinese cannot afford a ticket.

I could go on and on....

I think a non mercantalist balanced trade return on investment oriented growth strategy will win out in the long term.

anon: "It still has the second highest levels of poor and illiterate citizens in the world."

Yes, but China is a distant second to India when it comes to hunger and illiteracy.

FAO released its report on hunger recently. According to the report highlights as published in the Guardian, there are 847.5 million undernourished people in the world. India tops the list with 237.7 million, followed by China with 130.4 million, Pakistan 43.4 million, Democratic Republic of Congo 41.9 million, Bangladesh 41.7 million, Ethiopia 31.6 million and Indonesia 29.9 million.

Yes, but China is a distant second to India when it comes to hunger and illiteracy.

India's figures are comparable to china's in 1995 so...

I also believe our non mercantalist balanced trade and competetive industrial base with healthy EPS and ROI ratios is a superior model in the long run.

Whereas China's build at any cost to keep the economy has resulted in a ridiculous 70% investment to GDP ratio with ROI 1/3 of what you get in India.

Its growth strategy now is reminiscent of the USSR's in the 1920s and 30s back then even it achieved unheard of growth rates by essentially mobilizing the population while paying it serf like wages and massively expanding basic industries like steel and cement.

Cause : needs to be a peaceful environment for the business to function.

I am not complaining about corruption. Like indira gandhi said, it is an universal problem and it is in every country irrespective of whether it is a democracy or otherwise.

So what is first important is to have peaceful environment. Nobody will sink the good cash in a place where everybody roams around weapons and violence is the daily routine. I heard and understood from many that some of the countries which had withdrawan all plans of their expansion in pakistan on the assisination of bhutto and till now they have not revived their plans to look at pakistan.

Poverty in india has not gone to the extent of violence as it is happening in the name of religion and as per your standard much above the bpl

'This will require learning from the experience of India or other Asian economies in building sufficient internal revenue base for public expenditure, attracting greater foreign investment, expanding and diversifying exports and strengthening hard currency reserves.'

Attracting greater foreign investment.How? The country is unstable,its policies change every six months, there is a glut of production capacity in the global economy and there is a relatively tiny market and rolling power shortages in the country.

expanding and diversifying exports.How? Where are the investments? You think the managerial talent at top Pakistani companies have it in them/want to risk massive amounts of money trying to make advanced industrial products and compete head on with EU/US/Japanese MNCs? You think with the IMF effectively writing your economic policy you can get away with playing the 'high tarrif,buy local and unique national standards' game than India/China play?How many Pakistanis in responsible positions even understand this game?

strengthening hard currency reserves.How? Related to all the above + the 'land of terrorists' media image that Pakistan has is unlikely to help the situation.

I would like your views of what a comprehensive actionable revival plan for the Pakistani economy would broadly look like with reference to current Pakistani social/economic situation.

"Nobody will sink the good cash in a place where everybody roams around weapons and violence is the daily routine. I heard and understood from many that some of the countries which had withdrawan all plans of their expansion in pakistan on the assisination of bhutto and till now they have not revived their plans to look at pakistan."

2. Quality of Human Resource : Unlike India, IIT etc, Pakistan never earned a reputation in west. So who would be encouraged to invest in Pakistan.

3. Return on investment: Pak's economy is too small for any ROI. Case in point, Pak's auto industry. They had a head start over india in having japanese cars assemble in Pak since 1970s, at a time when India's protectionist policy was making 3rd rate domestic cars. Yet it is India which saw it auto industry grow by leaps and bounds in quality and today india exports to Europe where as Pak made cars are probably not even exported to Bdesh.

I have to come to an inescapable conclusion that Indians are inherently more focused and hard working than Pakistanis.

A number of commentators (mainly from India) have made unsupported observations and argued that Pakistan can neither increase its exports nor attract foreign investments.

What these commentators forget that Pakistan did more than double its exports in the last decade (2000-2007), and attracted a larger cumulative stock of FDI as percent of GDP than India, and its stock market outperformed all of the BRIC nations' stock markets.

Talking about foreign direct investment (FDI) in emerging economies, former US Federal Reserve Chief Alan Greenspan said in his book titled "The Age of Turbulence" : “But clearly the Licence Raj (in India) has discouraged foreign direct investment. India received $7 billion in FDI in 2005, a sum dwarfed by China’s $72 billion. India’s cumulative stock of FDI at 6 per cent of GDP at the end of 2005 compares with 9 per cent for Pakistan, 14 per cent for China, and 61 per cent for Vietnam.

Based on its track record, Pakistan can absolutely increase its exports and attract greater investment with a little bit of focus and improved security and stability. And I am hopeful this will happen within a few years.

Not trying to be a devil's advocate however, Pakistan has been falling behind.

In per capita GDP Pakistan in 1999 was $2000 (India @ 1800)and in 2009 we are at $2500 ( India @ 3100. Similarly, exports were at $8.4 bil (India's 36.3 bil) and 2009 we have $18.4 bil exports (India's 164.3 bil). Over the last 10 years in terms of value (the dollar inflated 40% approximately 1999-2009) exports have gone up 49%.

Our primary export is cotton and textiles and this industry is controlled by the feudals and it is in their interest to fight any competition. Government incentives to expand this export has been curtailed by these big land owners (some of them are in the government).Riaz, please investigate this issue.

Yes, but the point is that Pakistan has shown the ability to boost exports significantly...the problem is the mix....Pakistan does need to diversify its exports from textiles, leather and cement to have more higher value-added products to get a bigger boost.

Sohail: "Government incentives to expand this export has been curtailed by these big land owners (some of them are in the government)."

I am much more concerned about their lack of vision and incompetence than their well-known corruption. They are hurting the nation and themselves by holding up progress.

Alan Greenspan is the one who also repealed the glass Stengel act and introduced much of the deregulation that led to the current financial crisis.

I would take his views on anything with a large helping of salt.

Like I said we would rather protect our industry than have screwdriver assembly FDI units crowd it out.For eg;Much better that CG or L&T invests in transformer factories than ABB invests in a screw driver assembly unit in with most critical components are flown in from Europe.FDI is not a necessary requirement for high growth in an economy with a high savings rate(33-36%) like India as the examples of South Korea and Japan clearly demonstrates.

What matters for economic growth is1.Investment/GDP which is currently 40% of GDP in India.2.Return on Investment which in India's case is typically 2-3 times that of China.

Pakistan throughout its independence has had 2-3 instances of 6-7% growth which last for 7-8 years coinciding with massive inflows of aid but peters out immediately when the aid stops.

The previous such spurts of growth were between 1955-1965 and in the 1980s.

Pakistan has no internationally competitive industrial base an Achilles heal which no one in Pakistan is trying to rectify.

Top exports even during Musharaff's 'miracle years' were low end textiles,sugar,cement,footballs(hand sewn) and mangoes!

The corresponding items for India were Software/IT services,Gems and Jewelry,Capital goods,light industrial goods,refined petroleum products,pharmaceuticals.Over 90% of which were/are exported under Indian brand names.

PAkistan should sign a FTA with India.It makes much more sense to import from India than China since distances are smaller and the climatic conditions are similar.

Rivals trade all the time china trades with Japan and the US.

Pakistan should stop shooting itself in the foot and sign a free trade deal with India.This will benefit it much more than India.For eg: Currently most of PAkistan's tea is imported via dubai but originates in India.Isn't this foolish?Why not buy direct from India and pay less and cut out the dubai middle man?

anon: "PAkistan should sign a FTA with India.It makes much more sense to import from India than China since distances are smaller and the climatic conditions are similar."

The only thing Pakistan can import from India is a commodity like tea, which it currently imports from Kenya. But Pakistanis, like the Brits, have developed a taste for Kenyan tea already.

As for as manufactured goods are concerned, do you know that India itself is heavily dependent on Chinese imports and runs large trade deficits with China and the rest of the world?

India's imports from China expanded 19 per cent and stood at US$ 32.49 billion in 2008-09, while exports were at US$ 9.35 billion. India's trade deficit with China is expected to grow larger this year, a trend India considers alarming given the nature of imports that go into India's essential infrastructure of power generation and telecommunications networks.

Chinese are now supplying equipment for about 25% of the new generating capacity India is adding to its national grid, up from almost nothing a few years ago. There are thousands of skilled Chinese expatriates at Indian plant sites, along with Chinese chefs, Chinese television and ping pong.

India is already the biggest export market for China's two leading telecom equipment manufacturers, Huawei Technologies and ZTE, as both companies have focused on India in recent years. As India has grown to the world's No. 2 mobile phone market in recent years, its imports of Chinese handsets have soared.

Unlike China, India lacks the necessary industrial and manufacturing base for greater self reliance in infrastructure equipment and defense armaments. India also runs large current account deficits while China is enjoying large surpluses strengthening its economic position in the world.

Riaz,I am in the textile business and my point is that it is difficult to expand. The larger companies are in partnerships or agreements with these big feudal cotton farmers. They try to affect your business by not supplying cotton or raise their prices. They are using floods as their reason but, the larger businesses are getting their share!!

Many of us will have to close shop even though government says they will help.

"Unlike China, India lacks the necessary industrial and manufacturing base for greater self reliance in infrastructure equipment and defense armaments. India also runs large current account deficits while China is enjoying large surpluses strengthening its economic position in the world."

This is true but India is far ahead of Pakistan in infrastructure for producing consumable items like Autos including specialized items like Diesel Locomotives or Electric Locomotives. India exports many of this. Where is Pakistan?

India has the human resource kill, entrepreneurship to make various industries succeed. Pak has none.

That China is far ahead of India is no relevance to Pak's own failure.

A correction. India is 5th largest power producer in the world and its demand far exceeds supply. India produces around 150 Gigawatt (150,000 MW), out of which it produces on its own 75%. India is requiring China's help in only filling the gap what NTPC and other state owned enterprises can not do.

"Why not buy direct from India and pay less and cut out the dubai middle man?"

India can offer far more than team to Pakistan. India can build Pakistan's railway infrastructure. Anyone remembers Pakistan's fiasco with China imported Diesel Engines some 5 yrs back when it broke like anything. The chinese company walked away from warranty saying that the operating conditions in Pak railway is far worse than the locos were meant for. It took some political pressure to get that fixed. As for quality of Indian locos, Malaysian rail runs totally on indian locos leased and so are many African countries including South Africa.

The biggest beneficiary of Indian imports would be Pakistan citizens who currently are paying considerably more than Indians for the same product, be it over the counter medicine to Suzuki cars. It will also help domestic industries compete with Indians and improve their quality.

Sohail: "I am in the textile business and my point is that it is difficult to expand. The larger companies are in partnerships or agreements with these big feudal cotton farmers. They try to affect your business by not supplying cotton or raise their prices. They are using floods as their reason but, the larger businesses are getting their share!!"

I understand your concern. But my larger issue is disproportionate reliance on textiles for exports...Pakistan needs to focus on exporting higher value products whose demand is growing to ensure expansion of exports for sometime in the future.

The consumption patterns in the world now are trending more toward consumer electronics, computers, telecom and software....Pakistan needs to build its capacity to export these high-value added products in the future.

anon: "Pakistan throughout its independence has had 2-3 instances of 6-7% growth which last for 7-8 years coinciding with massive inflows of aid but peters out immediately when the aid stops."

You are ignorant of Pakistan's economic history. For most of its existence in the last 63 years, Pakistan economy has grown at a rate of about 6% annually, much higher than the 2% "Hindu growth rate" India saw until early 1990s.

Here's an except from a lecture Pakistani economist Dr. Ishrat Husin, delivered at Indian Business School in Hyderabad on Oct 7, 2005.

"Pakistan's growth rate until late 1980s averaged about 6 percent per annum and the incidence of poverty was lowered from 46% to 18 percent. This favorable situation was reversed in the decade of the 1990s. Growth rates tumbled to a average of 3 to 4 percent and poverty surged to 33 percent of the population. Inflation was double digits, large current account and fiscal deficits escalated debt-gdp ratio to over 100 percent. The country's foreign exchange reserves fell to less than $1 billion, exports were stagnant, tax collection efforts were lackluster. The country was almost on the verge of default crisis on its external paymrnts in October 1999 when President Musharraf took over the reigns of government."

During Musharraf years, Pakistan positioned itself as one of the four fastest growing economies in the Asian region during 2000-07 with its growth averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program.

These facts were acknowledged by the present government in a Memorandum of Economic and Financial Policies (MEFP) for 2008/09-2009/10, while signing agreement with the IMF on November 20, 2008. The document clearly (but grudgingly) acknowledged that "Pakistan's economy witnessed a major economic transformation in the last decade. The country's real GDP increased from $60 billion to $170 billion, with per capita income rising from under $500 to over $1000 during 2000-07". It further acknowledged that "the volume of international trade increased from $20 billion to nearly $60 billion. The improved macroeconomic performance enabled Pakistan to re-enter the international capital markets in the mid-2000s. Large capital inflows financed the current account deficit and contributed to an increase in gross official reserves to $14.3 billion at end-June 2007. Buoyant output growth, low inflation, and the government's social policies contributed to a reduction in poverty and improvement in many social indicators". (see MEFP, November 20, 2008, Para 1)

You are ignorant of Pakistan's economic history. For most of its existence in the last 63 years, Pakistan economy has grown at a rate of about 6% annually, much higher than the 2% "Hindu growth rate" India saw until early 1990s

Well where are the results? Its like saying for most of its existence 1917 thru 1970s the USSR had a faster growth than the US.Its only in the early 80s that the deficiencies of the system became glaring....

btw India's growth rate has been above 6% pa from the early 80s itself.It hit 9% pa in 2003 and more or less stayed there.

anon: "Well where are the results? Its like saying for most of its existence 1917 thru 1970s the USSR had a faster growth than the US.Its only in the early 80s that the deficiencies of the system became glaring...."

Again, you show your ignorance in abundance.

In spite of starting out at a significant disadvantage in 1947, Pakistan now has much less poverty, less hunger, a larger middle class and a more urbanized population than India.

Over the last two decades, Pakistan has continued to offer much greater upward economic and social mobility to its citizens than neighboring India. Since 1990, Pakistan's middle class had expanded by 36.5% and India's by only 12.8%, according to an ADB report on Asia's rising middle class released recently.

Here are the details of income levels in India, Pakistan and China as reported by ADB:

Daily Income......$2-$4.......$4-$10........$10-$20.....Over $20

India...............20.45%......4.15%........0.45%........0.10%

Pakistan............32.94%......6.56%........0.62%........0.15%

China ..............33.97%......25.17%.......3.54%........0.68%

Pakistan has continued to offer much greater upward mobility to its citizens than neighboring India. Since 1990, China's middle class population has expanded by 61.4%, Pakistan's by 36.5% and India's by 12.8%.

In terms of education, average number of years of schooling in Pakistan is 13 years, 3 years more than India's 10, according to an education comparison published by Newsweek recently. An average Pakistani is, therefore, better educated and more capable of earning higher income than an average Indian.

Well you have an entire blog to display your infinite knowledge about India,philosophy, economics ,IT and what not.

But not how to carry out a civilized conversation.

'An average Pakistani is, therefore, better educated and more capable of earning higher income than an average Indian'

Yeah right!PAkistan's literacy rate is less than 46% vs India's 75%.And a substantial number of PAkistanis go to madrassas for their education.

When will you stop quoting data out of context.The same newsweek report if i recall also places India an order of magnitude ahead of Pakistan in economic dynamism the basic driver of all the other indices.

The ADB report has presented two main research approaches to define the Asian Middle class. One approach done by Chun et al uses a household survey data method (page3-4). Chun uses sampling size method(in Pakistan's case FATA and KP areas were avoided). This is what you have repeatedly elected to cite in your blog. This survey is subject to social perception (page 10)

However, ADB also did a more thorough national analysis of China, India and Indonesia. Here household survey was more specifically evaluated and compared with consumption data(consumer durables) Please see page 7-9 of the report. Here the data indicates middle class($2-$20) for China(2007) at 89.1%, India(2005) at 38.1% and Indonesia(2009) at 42.7%.

Although Pakistan is fourth largest developing Asian country in terms of population a formal ADB discussion of its' middle class has been avoided. The authors chose Philippines instead. ADB was not able to get complete verifiable data in 2005 on Pakistan due to declining security conditions.

Let me share with you some real comparative data with sources and links that you consider out-of-context but I consider relevant:

One out of every three illiterate adults in the world is an Indian, according to UNESCO. Pakistan stands fourth in the world in terms of illiterate adult population, after India, China and Bangladesh.

One out of very two hungry persons in the world is an Indian, according to World Food Program. Pakistan fares significantly better than India on the hunger front.

Poverty:

Population living under $1.25 a day - India: 41.6% Pakistan: 22.6% Source: UNDP

The reason for higher levels of poverty in India in spite of its rapid economic growth is the growing rich-poor disparity. Gini index measuring rich-poor gap for India is at 36, higher than Pakistan's 30. Gini index is defined as a ratio with values between 0 and 100: A low Gini index indicates more equal income or wealth distribution, while a high Gini index indicates more unequal distribution. Zero corresponds to perfect equality (everyone having exactly the same income) and 100 corresponds to perfect inequality (where one person has all the income, while everyone else has zero income).

prashant: "The ADB report has presented two main research approaches to define the Asian Middle class."

As far as I know, the ADB report uses the most liberal criteria of anyone at or above $2 a day as part of the middle class which results in only 25% of India population and 40% of Pakistani population being in the middle class.

Another report by Nancy Birdsall of Center for Global Development says India class is a myth. She has proposed a new definition of the middle class for developing countries in a forthcoming World Bank publication, Equity in a Globalizing World. Birdsall defines the middle class in the developing world to include people with an income above $10 day or $3,650 a year, but excluding the top 5% of that country. By this definition, India, even urban India alone, has no middle class; everyone at over $10 a day is in the top 5% of the country.

Using Birdsall's proposed definition, Pakistan now does have a middle class of tens of millions (at least 10% of the population), as its 30 to 35 million people earning an average of $10,000 a year (well above Birdsall's lower limit of $3,650.00 a year) account for about 17% of Pakistan's population. Another 60% of Pakistanis (vs 75% of Indians) live on less than $2 a day, according to UN Human Development Report 2009. The rest of 23% of the people have incomes between $730 a year ($2 a day) and $10,000 a year, and a significant percentage of them could be classified as lower middle class.

Interesting that you mention Nancy Birdsall because, she is very much against throwing money at a problem (Delhi University, Lecture given to Economics post graduates). ADB rejected her methodology in the middle class report. Furthermore, this is what she said about giving economic assistance to Pakistan..

"The lessons from past donor experience are sobering. Despite huge inflows of assistance fromdonors and multilateral creditors, Pakistan has made only halting progress on the fundamentalsof state building and social development. Today its democracy is fragile, corruption andpatronage are rampant in government, most of its children never complete primary school, andits health indicators lag behind those of Bangladesh, despite having higher average income. Asjust one example, poverty in Pakistan was higher in 2004 than it was a decade earlier, despitemillions of dollars spent by the World Bank on a large antipoverty program in Pakistan in the1990s.20 At least then and in those sectors, the bottom line was clear: it is very hard to effectively spend a surge of aid money in Pakistan." N Birdsall

Prashant: "Furthermore, this is what she said about giving economic assistance to Pakistan.."

I agree with Birdsall's criticism of the effectiveness of official aid to Pakistan through corrupt and inefficient govts.

But I disagree with her data on poverty, health and other social indicators. What she is quoting is not supported by the WB or the UNDP or the latest multi-dimensional report published by Oxford researchers which will be incorporated in the next UNDP HDI report.

World Bank economist Sanket Mohapatra has said in a recent post that remittances by overseas Pakistanis have played a significant role in Pakistan's economic improvement. Not only have such remittances contributed to significant poverty reduction in Pakistan "by an impressive 17.3 percentage points between 2001 and 2008 (from 34.5 percent in 2001-02 to 17.2 percent in 2007-08)", but "continued strong growth in worker’s remittances in the past few years has also contributed to improvements in the external current account balance” and “have facilitated improvement in the country’s external position”, according to a World Bank report released on July 30, 2010.

In terms of hunger, malnutrition, life expectancy at birth, access to doctors, etc. Pakistan is doing better than Bangladesh and India, according to UNDP data.

Developed at Oxford University, the new Multidimensional Poverty Index (MPI) goes beyond income poverty based on $1.25 or $2 a day income levels. It measures a range of "deprivations" at household levels, such as schooling, nutrition, and access to health, clean water, electricity and sanitation. According to Oxford Poverty and Human Development Initiative (OPHI) country briefings 2010, 55% of Indians and 51% of Pakistanis are poor.

OPHI 2010 country briefings on India and Pakistan contain the following comparisons of multi-dimensional (MPI) and income poverty figures:

During his recent visit to India, the new British Prime Minster David Cameron took seriously the advice offered to him by the British media to please his hosts in New Delhi: Never mention p overty, Kashmir and immigration caps on Indians. But he went a step further and denounced Pakistan for "exporting terror" to make his hosts really happy.

The tips offered by Alex Barker of the Financial Times in his blog went as follows:

1. Don't even mention Kashmir. "The quickest way to turn a charm offensive into a diplomatic fiasco. The basic rule: British ministers should say nothing. Don't dare criticise, offer to help, or link bringing peace to tackling terrorism. Stray words have consequences."

2. Avoid any references to poverty. "More poor people (in India) than anywhere on earth. But not worth mentioning too loudly. Talk about the New India instead. Mention the aid review. A patronising tone is fatal."

3. The third, "Coming over too fresh". Barker says: "The young, dynamic, no-nonsense version of Cameron should probably be left behind. It's time to learn some manners. Indian politicians are, as a rule, double his age and four times as grand. If the meetings are stuffy, formal, overbearingly polite, that's a good thing."

4. The fourth is the "Immigration cap". The columnist writes: "A big issue for the Indian elite. Anand Sharma, the commerce minister, raised his 'concerns' earlier this month with Cameron himself." Indians want to immigrate to Britain in large numbers and don't want to see any caps.

Talking about hypersensitive Indians, Irfan Husain, a Pakistani columnist for Dawn who is admired and quoted by Indian for his strident criticism of Pakistan, wrote earlier this year as follows:

The reality is that we are all touchy about seeing our dirty linen washed in public, but somehow, Indians seem super-sensitive to any hint of criticism. While there are many dissenting voices that question Indian claims to having reached Nirvana, they do not find much space in the mainstream media. Although Indian journalists do excellent work in digging up scams and scandals, they do not often question the broad consensus underpinning the ‘India shining’ image the media, politicians and big business work so hard at projecting.

I spent the other evening at the Karachi Boat Club in the company of a European who has spent a long time in the region, and knows South Asia well, having lived in Pakistan and India for several years. When I asked him how it felt to be back in Pakistan after being away for a few years in New Delhi, his answer came as a surprise. As we have known each other for fifteen years, he had no need to be polite: “It feels great to be back,” he replied. “You have no idea how difficult day-to-day life is in New Delhi. Apart from the awful traffic, the pollution, and the expense, you have to put up with the prickliness of most Indians you meet. They are touchy to the point of paranoia. There is a lot of very aggressive poverty in the air. And when the New Delhi airport opens, we’ll have to brace ourselves for yet another self-congratulatory blast. What is truly shocking is how little the well-off Indians care about the poor.”

“Here in Pakistan, people are so much more laid back. Karachi’s traffic flows much faster, and I don’t sense the same kind of anger. While I’m sure there must be slums, I do not see the same level of abject poverty that is ever-present in India. And of course, the food is much better here.”

Indians are so super-sensitive that a recent humorous piece titled "My Own Private India" in Time Magazine by Joel Stein brought an angry response from the Indian-American community. Here's an excerpt from Stein's article:

"I am very much in favor of immigration everywhere in the U.S. except Edison, N.J. The mostly white suburban town I left when I graduated from high school in 1989 — the town that was called Menlo Park when Thomas Alva Edison set up shop there and was later renamed in his honor — has become home to one of the biggest Indian communities in the U.S., as familiar to people in India as how to instruct stupid Americans to reboot their Internet routers....

For a while, we assumed all Indians were geniuses. Then, in the 1980s, the doctors and engineers brought over their merchant cousins, and we were no longer so sure about the genius thing. In the 1990s, the not-as-brilliant merchants brought their even-less-bright cousins, and we started to understand why India is so damn poor.

Several Indian-American organizations responded with outrage, criticizing TIME's decision to publish the article. For example, the advocacy group South Asian Americans Leading Together (SAALT) issued a statement and online petition in response to Stein's piece.

"Most offensive is his remarkably blasé tone about the discrimination and hate crimes that targeted the New Jersey South Asian Community during the 1980s," the SAALT statement said.

Both Stein and TIME felt compelled to issue online apologies, saying they never intended to offend readers.

"Indians are so super-sensitive that a recent humorous piece titled "My Own Private India" in Time Magazine by Joel Stein brought an angry response from the Indian-American community. Here's an excerpt from Stein's article:"

This is definitely true. However we should also admit that Pakistanis are super sensitive about their own failure. If anyone asks them why India is so far ahead of them in education, exports, they simple refuse to accept that quality of human resource is one big difference. I understand that admitting that is not easy because right from birth, state propaganda machine has been feeding 'truth' that muslims are superior to Hindus.

I read the Time piece by Mr.Stein and the pushback by KalPenn. Mr. Stein clearly wanted to paint the Indian American community with the same brush that was used to portray the Irish in the sixties or seventies. Just watch some of the sitcoms from the eighties. Many of the jokes at the expense of minority communities would not be kosher today. Certain assertiveness is necessary, otherwise people like Mr. Stein would start taking much more liberties next time around. I see nothing wrong with some polite, civil pushback.

In Youtube, there are hundreds of videos making fun of Indian accent like http://www.youtube.com/watch?v=jZebgL5f8oQ and http://www.youtube.com/watch?v=7rmcThFmdEk, both which are popular and funny. As usual, some Indians have come up with racist and sexist slurs against those who made those jokes. Irony is that Indians themselves have an extremely inflated sense of their English skills and think that Germans, Italians, Arabs etc talk very poor English. From my(rather limited) experience with Pakistanis in Germany, I find them relatively modest when they talk about their English or their technical skills and this normally make them less of a laughing stock when compared to some Indians - but Pakistanis are often very sensitive to religion - it is not that they are like DC said feeling smug superiority, rather more like irrationally pious and devout.

Here's an excerpt from a commentary by Jawed Naqvi of Dawn on corruption in Indian democracy:

The rot in the legislature was again on display recently when opposition MPs offloaded bundles of currency notes in the Lok Sabha, alleging that the money had come from Dr Singh’s party to enable him to win a vote on his nuclear tie-ups with the United States. His Left Front allies tried to block the vote and so they were eased out in the second UPA government.If the lure of lucre could corrupt ordinary MPs we can only imagine the devastating consequences it would have for the executive. There was a time when Indian ministers were cited as examples of probity. With committed activist-politicians like Feroze Gandhi keeping vigil, scams were unearthed promptly and punishments meted out instantly. Nehru’s cabinet minister Rao Shiv Bahadur Singh was jailed as early as in 1949 for accepting a mere 25,000 rupees for forging a mining document.

In 1958, Finance Minister T. T. Krishnamachari resigned for helping place state-owned insurance funds with a private banker. The businessman, Haridas Mundra, was jailed. Other tycoons were punished with regularity those days. In 1959, Ramakrishna Dalmia, head of Bharat Insurance Company, was jailed for two years for misappropriating 22 million rupees from the company. Businessman Dharam Teja siphoned 220 million rupees for a spurious shipping company. He was arrested in Europe and jailed for six years. The father of the current chief minister of Orissa was forced to resign for favouring his own company in awarding a government contract. That was the system which today is denounced variously as populist, socialist and inefficient.

Today the honest Dr Singh can’t get rid of a telecommunications minister who is widely accused of large-scale corruption, because if he did his government would fall. From Harshad Mehta to Satyam, the journey of Indian financial sandals has dotted the reforms agenda. The defence deals scandal of the Vajpayee government is not entirely unconnected to the lure of lucre. A former socialist, the then defence minister had to resign though all too briefly. He signalled a new brazenness in blunting public outcry by shooting the messenger. Tehelka.com was shut down for exposing the defence deals and its journalists hounded by various agencies.

However, the free-market genie was to get even with the prying eyes of the media. It simply co-opted the main players. Thus we recently saw the income tax department naming two of India’s most popular TV anchors — a man and a woman — for involvement as lobbyists for a tainted minister. That rules governing conflict of interest were bent to allow newly set up as well as older media houses to perform their sleight of hand is by now axiomatic. One day the hub of India’s free-market architecture — the Securities and Exchange Board of India (SEBI) — realised that its business was getting mired by spurious reporting.

"Everyone has different standards about cleanliness. The Westerners have different standards, we have different standards," said the Delhi Commonwealth Games Chief Lalit Bhanot in response to criticism that "the facilities are filthy and unhygienic", according to the BBC.

"This is a world-class village, probably one of the best ever," Bhanot added.

Delegates who visited the tower blocks where athletes will live during the games have described them as filthy, with rubble lying in doorways, dogs inside the buildings, toilets not working and excrement "in places it shouldn't be".

Speaking at a news conference in Delhi, Lalit Bhanot, secretary general of the Delhi organizing committee, said the authorities understood the concerns shown by some member countries and the Commonwealth Games Federation (CGF).

But he suggested that the complaints could be due to "cultural differences".

New Zealand chef de mission Dave Currie has suggested the Games might even have to be canceled.

He told New Zealand commercial radio on Tuesday: "If the village is not ready and athletes can't come, obviously the implications of that are that it's not going to happen.

"It's pretty grim really and certainly disappointing when you consider the amount of time they had to prepare."

New Zealand, Scotland, Canada and Northern Ireland have demanded their teams be put up in hotels if their accommodation is not ready.

Commonwealth Games England has called for "urgent" work on the facilities, raising concerns about "plumbing, electrical and other operational details".

I think the world is expecting too much of a nation where two-thirds of the people still def ecate in the open.

The BBC's Mark Dummett in Delhi says the Indian government had hoped that hosting the Commonwealth Games would highlight the country's strengths.

But many Indians now worry that the opposite has happened, and that the country's weaknesses have been very publicly exposed by the many problems, delays and allegations of mismanagement in the build up to the Games.

There is so much bad news printed in the media about Pakistan. I feel the jewish and hindu media is biased to hide their own problems. Living conditions are better in Pakistan than many other countries and 90% of wealth is hidden from the officials. So Pakistan is richer than what the western and Indian media think!

Riaz, you are doing a good job by printing the correct news about Pakistan because nobody likes India anyway because they steal good jobs.

Pakistan leads the world in the number cng vehicles and cng stations. Now, a report says that Landi Renzo Pakistan will export CNG Kits:

In Pakistan, Italian CNG kits manufacturer Landi Renzo, which commenced its assembling operations there in 2007, is planning expansion of production to enhance deliveries to growing export markets. Currently annual production exceeds 45,000 units. Corrado Storchi, External Relations Manager for Landi Renzo, confirmed the reports to NGV Global News, adding that “South-West Asia and South America are very important export countries for us”, with shipments also being made to China, Far Eastern and European countries.

Storchi confirmed that Landi Renzo has over 90 percent market share of CNG kits in Pakistan. It supplies to Indus Motors for Toyota and Daihatsu cars and Pak Suzuki Motor Company for its range of cars and vans, and other dealers and wholesalers.

Storchi also confirmed a report by The News that Landi Renzo intends to gradually increase the percentage of locally made components, currently at 20% but with the possibility of building to 100% as full quality and safety requirements are satisfied. A testing laboratory has been set up in Karachi, where all components are tested prior to assembly.

In the report, Landi Renzo Pakistan Chief Executive Officer Alberto Barbiery apparently warned that the safety and quality of the CNG kits, manufactured in Pakistan or imported, should be only installed by registered and certified dealers. Landi Renzo will soon launch an awareness campaign about safety and precautions regarding CNG kits.

Barbiery also encouraged the take-up of natural gas in the currently largely unexploited heavy duty vehicle market. “If heavy vehicles convert to CNG, the country would save precious foreign exchange being spent on diesel imports and environmental pollution would be reduced,” he said.

OT: Riaz Bhai, Indian coolies are doing great. Time to acknowledge that they are far ahead of us in quality of human resource.

Taken from Today's NYT

"At Cisco Systems, the network equipment giant, what started as a research and development center in the Indian city of Bangalore now has the status of a second headquarters. Since 2007, many top-level managers have moved to Bangalore from San Jose, Calif., as the company seeks to position itself better for the immense changes taking place in emerging Asia. Cisco does not publish a breakdown of profit by region. "

Here's a Business Recorder report on ADB's insistence on IMF prescribed reforms in Pakistan:

ISLAMABAD (updated on: October 02, 2010, 19:37 PST): Pakistan should stick to an IMF reform programme in order to secure enough financial support to rebuild after devastating summer floods and stabilise its economy, the Asian Development Bank (ADB) said.

Heavy financial support was critical for Pakistan long before one of the country's worst natural disasters struck. An International Monetary Fund (IMF) reform package agreed in 2008 had helped keep the economy afloat.

Although pressure on Pakistan eased after the IMF approved a $451 million emergency fund to help it rebuild after the floods, the ADB said delaying reforms would only hurt the country.

"What Pakistan should not have a problem with is continuing with the reform agenda. I am sure actually (this would) underpin a lot of donor support for not only the floods but for the stabilisation of the economy," said Juan Miranda, ADB's director general for its Central and West Asia department.

"We must continue with the reforms. This is our position. That's the way in which you can help people in the longer run.

Pakistan turned to the IMF for an emergency package of $7.6 billion in November 2008 to avert a balance of payments crisis and shore up reserves. The loan was increased to $11.3 billion in July last year, and the central bank received a fifth tranche of $1.13 billion in May.

The emergency fund is not part of the loan programme. Under the loan programme, the government pledged to implement tax and energy sector reforms and show fiscal discipline. However, the country has been missing the IMF targets regularly.

"We still have a programme with the IMF, and that is not something that you stop and then you start again. The economy will benefit by a continuation of the reforms. It's not a question of just money," Miranda said in a telephone interview.

"My biggest worry is that the reform agenda gets derailed. That we lose momentum."

The World Bank and Asian Development Bank are completing a damage assessment for Pakistan, which will give the government and donors an estimate of how much rebuilding will cost.

The floods could knock Pakistan's economic growth this year to as low as 2 percent because of heavy damage to crops, said Miranda, lowering his forecast from 3 percent in late August. Pakistan's official target was 4.5 percent.

Pakistan's central bank said this week economic growth for fiscal 2010/11 could fall to 2.5 percent.

Agriculture is Pakistan's second-largest sector, accounting for over 21 percent of gross domestic product. Nearly 62 percent of the population depends on agriculture for their livelihoods.

Reconstruction could cost tens of billions of dollars. The World Bank said on Thursday it had approved over $400 million in credit to help Pakistan rebuild from massive flooding. It said the funds were part of the Bank's $1 billion commitment to Pakistan in this fiscal year.

The World Bank and the United States have urged Pakistan to take steps to reassure donor countries it is capable of using aid responsibly and that it can enact reforms.

Miranda agreed, saying periodic audits should be conducted and made available to the public through the media.

"It's not just following the rules but showing people that you have followed them. It has to be good, sound, smart oversight," he said.

European textile firms are protesting EU trade concession for Pakistani textile imports to help Pakistan after the massive floods. Here's a Wall Street Journal story on it:

European Union trade concessions for flood-ravaged Pakistan have triggered a backlash among European manufacturers, led by an EU textile sector already imperiled by Chinese imports.

The tensions show how the economic downturn is increasing anxieties over trade to the point where even targeted humanitarian efforts to lower tariff barriers are called into question.

The European Commission, the EU's executive, Wednesday approved tariff waivers on 75 categories of imports from Pakistan for up to three years. The gesture followed an order by EU leaders eager to show they're helping some 10 million Pakistanis left without shelter after violent flooding this summer.

Pakistan isn't a big exporter to the EU, shipping only $4.2 billion worth of goods to the bloc last year. It ranked a distant 46th among EU trading partners, between the United Arab Emirates and Serbia.

However, more than 75% of those exports are textiles, clothing, leather or related products, and those goods will make up a majority of the roughly $140 million in total extra trade the EU says the deal will generate from eliminating the EU tariffs.

That's a problem for European textile manufacturers, mostly located in Europe's southern rim, from Portugal to Italy to Romania. Thousands of small shops and their workers have been getting crushed ever since China joined the World Trade Organization in 2001, partially opening up European textile markets. Some of these European economies are suffering slow growth because of the euro zone's debt problems.

SPIEGEL: Are interventions in exchange rates even capable of eliminating global imbalances?

Langhammer: When China allowed the yuan to gradually appreciate by some 20 percent between 2005 and 2008, there were no signs that this helped US businesses on the global market. The crucial thing is that a country must be well positioned with the range of goods that it wants to export. The US is still lagging well behind in that respect. SPIEGEL: As opposed to German industry?Langhammer: Definitely. Germany produces high quality goods that, to a certain extent, are independent of international price competition. To put it bluntly, people outside the European Union who buy a luxury German car or a machine tool don't make that decision based on the exchange rate.

But even smarter tactics might not be enough to regain lost ground. For though Reagan's aggressive policies were enough to stop the bleeding, they weren't enough to make the U.S. economy genuinely competitive again. Most U.S. producers never recovered what they lost in the 1980s. In fact, the question of just who beat whom in the last great trade war has no easy answer. Consider this: Japanese GDP growth from 1990 to 2000 -- Japan's so-called lost decade -- was just 0.2 percent less than America's when you account for increases in the U.S. population. And Japan comes out ahead on a per capita basis. Even with the battering it took, Japan's productivity growth outpaced that of U.S. workers in the 1990s.

As for that $55 billion trade deficit with Japan that so concerned Reagan in 1986? By 2006, it was $90 billion. Overall, the United States today is running a global trade deficit of roughly $600 billion.

The numbers aren't lying: It's time to realize that the United States never really beat Japan -- and it's unlikely to win against China without a new strategy. Chanting tired ideological mantras didn't save us in the 1980s. And it won't save us now."http://www.foreignpolicy.com/articles/2010/10/11/lie_of_the_tiger?page=0,1

About two-thirds of the US trade deficit is because of the so-called intra-company MNC trade. Big US corporations, such as Apple, Boeing, Cisco, Mattel who have ,moved manufacturing overseas to take advantage of lower costs, are big contributors to the deficit. German companies have done it to a much lower extent.

And why?I think root cause is what was identified by Melman.Is it not ironic indeed that the Germans are machine tool champions; whereas, US private industry lost out to mispricing caused by defense contracting?

About 60% of India's workforce is engaged in agriculture, contributing about 16% of GDP, according to published data. Textile manufacturing claims the second largest employment and comprises 26% of manufacturing output. It accounts for a fifth of India’s exports, and employs almost 10 percent of India’s workforce, or some 35 million people, and has the potential to add another 12 million new jobs --dwarfing the 1-2 million jobs created by the much-heralded IT and BPO sector, according to a World Bank report. Even the most optimistic estimates by NASSCOM put the total direct and indirect employment in IT and ITES sectors at 10 million jobs.

Agriculture in Pakistan accounts for 19.4% of GDP and 42% of labor force, followed by services providing 53.4% of GDP and 38% employment, with the remainder 27.2% of GDP and 20% workers in manufacturing sector. Over half of Pakistan's manufacturing jobs are in the textile sector, making it the second biggest employer after agriculture.

Here is a quick comparison of different sectors of the economy in India and Pakistan in terms of employment and GDP contribution:

Here is a quick comparison of different sectors of the economy in India and Pakistan in terms of employment and GDP contribution:

Country....Agri(emp/GDP)..Textiles..Other Mfg..Service(incl IT)

India........60%/16% ...........10%/4%.....7%/25%...........23%/55%

Pakistan......42%/20%...........12%/8%......8%/18%...........38%/54%

Assuming India's PPP GDP of $3.75 trillion (population 1.2 billion) and Pakistan's $450 billion (population 175 million), here is what I calculated in terms of per capita GDP in different sectors of the economy:

India vs. Pakistan:

Agriculture: ($833 vs. $1,225)

Textiles: ($1,242 vs. $1,714)

Non-Textile Mfg ($11,155 vs $5,785)

Services ($7,246 vs $3,654)

It shows that Indians in manufacturing and services sectors add more value and produce higher value goods and services than their Pakistani counterparts.

The income range in India is much wider from $883 to $11, 155 accounting for the much bigger rich-poor gap relative to Pakistan's range from $1225 to $5,785.

Here are some excerpts from a piece by Dost Mittar on Chowk.com comparing China and India:

India’s foreign exchange reserves at $300 Billion are only a fraction of China’s and those, too, are not based on export earnings but due to inward remittances and fickle inflows of institutional investments in its stock markets.

Some analysts, especially Indians, have recently become much more aggressive in their economic forecasts for India and started comparing their country to Tortoise in a race with the Chinese Hare. They have suggested that China has peaked in its growth whereas India is just starting. They claim that India has strong legal and financial institutions which the Chinese lack. They foresee bottlenecks in the growth of China just as India’s potential is beginning to be realized. How far is this a valid hypothesis?

India is expected to invest a trillion dollars in its infrastructure and many countries are vying with each other to get a slice of this large pie. This is the reason why leaders of almost all major countries have visited or due to visit India this year. These investments are likely to generate large employment opportunities directly and many more indirectly, in addition to improving economic prospects of regions which are currently not well served by infrastructure.

India’s economic growth has been largely based on the domestic market. India’s middle class is booming and is now gradually expanding to smaller towns and even rural areas. The telecom revolution has been real and now covers most villages. Television has reached into the hinterland and raised aspirations of rural masses for the kinds of goods and services that they see being enjoyed by the urban middle class. India largely escaped the recent global recession in part due to the strength displayed by consumers in small towns and villages which were not dependent upon IT and other sectors which are closely tied to the global economy. The rural sector now accounts for half of the two-wheelers sold in India and an increasing number even of small cars. However, a relative lack of growth has led to a serious trade deficit for India, which has so far been filled through capital inflows which cannot be relied upon on a long-term basis. High and rising costs of oil imports of petrol, large infrastructure projects and large-scale defense purchases indicate that these imbalances are likely to worsen rather than improve in the coming years.

Exports during August, 2010 were valued at US $ 16644 million (Rs. 77509 crore) which was 22.5 per cent higher in Dollar terms (18.0 per cent higher in Rupee terms) than the level of US $ 13586 million (Rs.65670 crore) during August, 2009. Cumulative value of exports for the period April-August 2010 was US $ 85273 million (Rs 392811 crore) as against US $ 66326 million (Rs. 322424 crore) registering a growth of 28.6 per cent in Dollar terms and 21.8 per cent in Rupee terms over the same period last year.

B. IMPORTS

Imports during August, 2010 were valued at US $ 29679 million (Rs.138211 crore) representing a growth of 32.2 per cent in Dollar terms (27.4 per cent in Rupee terms) over the level of imports valued at US $ 22449 million ( Rs. 108506 crore) in August, 2009. Cumulative value of imports for the period April-August, 2010 was US $ 141894 million (Rs. 653828 crore) as against US $ 106605 million (Rs. 518024 crore) registering a growth of 33.1 per cent in Dollar terms and 26.2 per cent in Rupee terms over the same period last year.

C. CRUDE OIL AND NON-OIL IMPORTS:

Oil imports during August, 2010 were valued at US $ 7795 million which was 12.4 per cent higher than oil imports valued at US $ 6936 million in the corresponding period last year. Oil imports during April-August, 2010 were valued at US$ 40736 million which was 31.7 per cent higher than the oil imports of US $ 30929 million in the corresponding period last year.

Non-oil imports during August, 2010 were estimated at US $ 21884 million which was 41.1 per cent higher than non-oil imports of US $ 15513 million in August, 2009. Non-oil imports during April - August, 2010 were valued at US$ 101157 million which was 33.7 per cent higher than the level of such imports valued at US$ 75676 million in April - August, 2009.

D. TRADE BALANCE

The trade deficit for April - August, 2010 was estimated at US $ 56620 million which was higher than the deficit of US $ 40279 million during April -August, 2009.

Pakistan is seeking to lower US import tariffs on its textiles, according to Washington Post:

FAISALABAD, PAKISTAN - The United States has spent billions of aid dollars on Pakistan, but more than nine years after Islamabad joined the global fight against terrorism, the U.S. government remains unable to provide its strategic ally with one thing it really craves: easier access to the U.S. market for its T-shirts, towels and socks.

Pakistani leaders have long sought trade concessions from their U.S. counterparts in recognition of Pakistan's efforts to root out insurgent groups on its soil, but the calls for lower tariffs have intensified since this summer's floods, which displaced millions and destroyed much of the country's cotton crop.

Lifting tariffs on Pakistan's textile products would undoubtedly boost the country's economy. The textile sector employs nearly 40 percent of Pakistan's industrial labor force and accounts for 60 percent of its exports, and the United States is already one of Pakistan's biggest markets.

-----

The House last year passed a narrowly focused bill designed to promote export industries in Afghanistan and specific zones primarily in Pakistan's northwestern border region, but a corresponding bill has been stalled in the Senate. Separately, the U.S. textile industry has made clear it would strongly oppose any legislation that is more ambitious than the bill being considered, saying it would put American jobs at risk.

Pakistani officials and business leaders say they understand that U.S. lawmakers have to answer to their constituencies, but they insist that increased bilateral trade would benefit both countries.

"We do not want aid. We want trade," said Salamat Ali, chairman of Tauseef Enterprises, a garment company based in this Punjab province city that is home to hundreds of thousands of textile workers and 300,000 power looms. "It's better for America and for other allies if Pakistan stabilizes."

Seeking a wider agreement

Pakistan typically exports about $10 billion of textile products each year, with about a quarter of that amount going to U.S. retailers. Waqar Masood Khan, secretary of the Textile Industry Ministry, said that if the United States and Europe lifted trade restrictions, it would result in a $3 billion increase in exports in the short term.

Pakistan succeeded recently in securing trade relief from the European Union, which agreed to waive tariffs on certain textile products from Pakistan for up to three years, starting in January. Pakistanis welcomed the concession but said the waivers, which exclude some finished goods, are unlikely to result in any significant increase in trade.

---

David Trumbull, vice president for international trade at the Boston-based National Textile Association, also said that too often it is the textile industry that has borne the brunt of U.S. trade concessions.

But Pakistani textile factory owners say substantial trade relief is essential at a time when their industry is facing all sorts of challenges.

Because of security concerns, prospective foreign buyers are reluctant to visit Pakistan. High cotton and polyester prices and general inflation have increased production costs significantly.

More crippling, though, are electricity and gas shortages. Some factory owners use more costly generators and wood furnaces to compensate, but many just choose to leave power looms idle and let workers go.

"The Christmas and New Year orders are coming now, and this is the time to ship them," said Waheed Khaliq Raamay, owner of a weaving factory in Faisalabad. "Because of the gas shortage, we are losing customers - and we are losing our faith as well."

Thailand alone (population 66 million) exports (about $188b), more than Afghanistan, Egypt, Jordan, Lebanon, Mauritania, Morocco, Pakistan, Syria and Tunisia (combined population 345 million) altogether. The countries of the Middle East barely trade among each other, let along with the economic powerhouses of Asia, according to the Wall Street Journal.

Here are some excerpts from an Op Ed in Newsweek Pakistan by Meekal Ahmed, a former IMF official:

The government hopes to generate Rs. 53 billion during the last quarter of the current financial year, which concludes on June 30. It hopes to achieve this by imposing a 15 percent surcharge on income tax paid by Pakistan’s paltry 1.7 million registered, individual taxpayers. Given the small tax base and modest yield, the surcharge seems unfair and not worth it. In a move that is regressive and potentially inflationary, depending on the market, excise duty on certain import items has been increased from 1 percent to 2.5 percent until end-June. While these measures are better than doing nothing at all—which is what happened during the first three quarters—they are far from ideal, and don’t go far enough to address the big problems with the economy.

But it’s not all bad. The elimination of tax exemptions for agricultural inputs (including tractors, fertilizers, and pesticides) was long overdue. With a strong agro-lobby preventing taxation on their handsome incomes in a sector that contributes 21 percent of GDP, the government might as well tax the inputs. Tax exemptions for export quality textiles sold within Pakistan have also been nixed despite resistance from the fierce textile lobby. The freeze on additional hiring in the public sector, and the 50 percent cut in several spending categories should also be welcomed.

Then there is the profusion of what many Pakistani media outlets call “petrol bombs”—highly unpopular oil price adjustments at the start of each month. The government announces the adjustments, and then rolls them back under popular and political pressure. The fuel price adjustments are unavoidable. Pakistan is a net oil importer and can’t insulate itself from global price shocks. Oil prices have risen steeply in the last three months, and have now crossed the psychologically important 100-dollar mark. Pakistan’s fuel subsidies—at an estimated Rs. 5 billion per month that could have been spent on development—are unaffordable and unsustainable. Oil prices will remain high for a while. Pakistanis must adjust to this reality. ........Despite the new measures, doubts remain about the revised tax-revenue targets and the state’s capacity to achieve them. The Federal Board of Revenue is notorious for its chronic underperformance. The justification that there is a tax revenue shortfall because the economy is in recession holds no water. An economy expected to grow at around 3 percent is not, technically speaking, in recession, but is growing below its potential. There is no cycle for fiscal revenues in Pakistan: whether the economy grows at 3 percent or 7 percent, whether inflation is 2 percent or 25 percent, tax revenues fail to keep up. If they did not, there would be a constant tax-to-GDP ratio, which is actually falling. This trend points to the existence of deep-rooted structural deficiencies in the tax system, which is regressive, anti-poor and plagued by too many exemptions and concessions. Then there’s also corruption, abuse of the system, and evasion. Even taxes withheld at source are not deposited in the government’s account because of alleged connivance between withholding agents and tax officials.

Here's Maplecroft risk warning for investing in India, according to Times of India:

LONDON: The United Kingdom-based Global Risks Atlas 2011 on Friday described India as the 16th riskiest country to invest in for the security hazards it poses and rather embarrassingly clubs it with Niger, Bangladesh and Mali. The Atlas is published by Maplecroft, a consultancy founded by Alyson Warhurst, chair of strategy and international development at Warwick Business School.

The evaluation is structured on seven key global risks including macroeconomic risk and threats around security, governance, resource security, climate change, social resilience and illicit economies.

Maplecroft assessed India faces simultaneous threats of terrorist attacks from Islamists and Maoists. It also points at India's lack of social resilience despite a robust economic growth and cites its poor human rights record. It says large sections of the population lack access to basic services such as education, healthcare and sanitation, and highlights its less productive workforce, greater susceptibility to pandemics and susceptible to social unrest.

A press release by Maplecroft lumps Pakistan with Russia on investment risk:

Dynamic political risks constitute immediate threats to business and Maplecroft rates 11 countries as ‘extreme risk.’ Most significantly, the emerging economy of Russia has moved up five places from 15th to enter the top ten for the first time, whilst Pakistan has also moved two places up the ranking to 9th.

Russia’s increased risk profile reflects both the heightened activity of militant Islamist separatists in the Northern Caucasus and their ambition to strike targets elsewhere in the country. Russia has suffered a number of devastating terrorist attacks during 2010, including the March 2010 Moscow Metro bombing, which killed 40 people. Such attacks have raised Russia’s risk profile in the Terrorism Risk Index and Conflict and Political Violence Index. The country’s poor performance is compounded by its ‘extreme risk’ ratings for its business environment, corporate governance and the endemic nature of corruption, which is prevalent throughout all tiers of government.-----Jim O’Neil, Chairman of Goldman Sachs Asset Management, states: "Growth is happening where political risk is most challenging. So, meticulous monitoring and mitigation now will enable business to flourish and benefit from the opportunities presented by the future growth economies of the BRICs and Next 11".

Looking to the longer term, the BRICs countries are witnessing increasingly worse structural political risk trends for 2011. China (25), India (32) and Russia (51), rated ‘high risk’ and Brazil (97) medium risk, have all seen risks increase compared to scores from last year’s Atlas.

Here are some excepts from an Op Ed by Pak industrialist Yousuf Shirazi of Atlas Group:

---Pakistan’s mineral resources – oil, gas and copper, much less gold – remain unexploited. Whatever the case, Pakistan is basically an agricultural economy. Before Partition, the area now comprising Pakistan had fed the entire India. Even now when the floods have affected the crops, Pakistan is exporting rice and wheat. And the cotton prices are so high that, together with wheat and rice prices – reinforced by global revival – it has fed the entire rural area, with unusual liquidity, so as to give a fillip to consumer demand seldom seen before!

Pakistan’s major exports consist of textile, rice, leather goods, sports goods, chemicals and carpets. More than 50 per cent of its export earnings still come from textiles – now yarn being in the forefront. Only if Pakistan focuses on agriculture in the right way can it replace the import with export economy. The current year is expected to record export of over $25 billion but, on the other hand, imports are also expected to exceed exports – $35 billion at the close of the year. The deficit finance – July-December FY10, $6.895 billion – is not any pride whatsoever. The existing situation can be remedied through exploration of mines and optimising agricultural growth and export---------In a situation like this, perhaps, the only course remains increased reliance on aid, loans and credit, which, in essence, has been worsening the economy. These loans and credits, in fact, help the economies of the developed world more than the economies of the developing countries. This is achieved through massive import – of machinery, raw materials, if not food – the PL480 of the USA – depriving the recipient countries of local investment, production and export. This has been leading to unemployment and poverty from which the developing countries traditionally suffer. The solution for the developing countries lies in reliance on education, healthcare and socio-economic infrastructure – more so in Pakistan.---------Socio-politico-economic harmony will depend, among others, on development finance through development finance institutions like PICIC and IDBP that provided long-term development finance. Now there is none. The commercial banks are doing it, but not adequately enough. It is not the job of commercial banks either. However, they are not only providing development finance of whatever worth, but all sorts of non-commercial banking – investment banking, leasing, to say nothing of asset management, and mutual funds. Jack of all trades, master of none. It is all at the cost of commercial banking, per se. The regulators may take note of it. The sooner this anomaly is rectified the better for the export orientation of the economy, and for the socio-politico-economic development of the country as a whole.

An immediately available solution is facilitating remittances, now roughly $1 billion per month and taxing the 57 per cent underground economy, under-invoicing and tax evasion, if not smuggling. The World Bank’s recent report claims this deprives the exchequer of over $500 billion annually. This will be equal to, if not, more than the aid, loans and credits which are always given at a high cost to the economy. Taxing the underground economy will reinforce localisation of investment, production and exports – glocalisation, creating employment opportunities, providing the roti, kapra aur makaan (bread, clothing and shelter) promised to the masses of people, not globalisation, which serves global interests. It will enable also much sought after access to the developed world based on outright merit.

Here's a NY Times report on Texas farmers planting more profitable cotton in stead of food crops:

“There’s a lot more money to be made in cotton right now,” said Ramon Vela, a farmer here in the Texas Panhandle, as he stood in a field where he grew wheat last year, its stubble now plowed under to make way for cotton. Around the first week of May, Mr. Vela, 37, will plant 1,100 acres of cotton, up from 210 acres a year ago. “The prices are the big thing,” he said. “That’s the driving force.”----------“It’s good for the farmer, but from a humanitarian perspective it’s kind of scary,” said Webb Wallace, executive director of the Cotton and Grain Producers of the Lower Rio Grande Valley. “Those people in poor countries that have a hard time affording food, they’re going to be even less able to afford it now.”

Farmers typically respond by increasing plantings of the most profitable crop. In the middle of the last decade, as food prices began to rise, cotton prices remained low, prompting farmers to switch from cotton to grains and other food crops. When corn prices jumped with ethanol demand in 2007, farmers grew much more corn.

This year, cotton prices are the highest they have been in years, luring farmers despite strong prices for other crops.

The United States Department of Agriculture predicted last month that southern farmers this spring would plant 12.8 million acres of upland cotton, the type that accounts for the vast majority of the crop. That is a 19 percent increase from last year, when farmers grew 10.8 million acres. It also predicted that the acreage for corn and wheat would grow, although the increases would be lower than they might have been without the competition from cotton. On Thursday, the department will release an updated forecast, based on a survey of farmers.

The effect of the cotton shift is expected to be magnified internationally, as farmers in other major cotton-producing countries, like Brazil, also respond to the high prices.

Cotton futures prices reached nearly $2.20 a pound this month on the ICE futures exchange in New York, up from $0.73 a pound last July. The price is expected to fall by harvest time, but farmers said they hoped to get close to $1 a pound.

In the United States, the economics of growing cotton vary according to many factors, including regional differences and whether or not the land is irrigated. Farmers in several southern states said that at a cotton price of about $1 a pound, their profit could be roughly $200 to $500 more per acre than they could earn growing corn or wheat. For 1,000 acres planted in cotton, that means an additional $200,000 to $500,000 profit.

-----Mr. Patterson expects to plant 1,500 acres of cotton this year, up from 600 last year. He said the frenzy was so intense that even cattle ranchers were talking about growing cotton.

Farmers say they have no choice but to plant the crops that give them the best chance of making money. They face many uncertainties, and their profits can be wiped out by bad weather, rising costs for items like fertilizer, fuel or seed, or unstable crop prices, which can plummet as rapidly as they rise.

The National Cotton Council expects substantial increases in all cotton-growing states, including large jumps in North Carolina, Mississippi and Tennessee. But Texas is the nation’s biggest cotton producer, and will have by far the biggest increase in acreage.

KARACHI: Pakistan could play host to an extreme growth spurt in the information technology industry in the next 10 years, according to a study quoted by IBM’s Country General Manager Hamayun Bashir.

Speaking at a ceremony held to celebrate a century of IBM’s existence on Thursday, Bashir informed Pakistan may have up to one million jobs in the information technology industry by 2020.

“IBA students are working on a study with assistance from the Overseas Investors Chamber of Commerce and Industry’s IT committee. The report, to be published in a few months, underlines that by 2020, Pakistan can easily have a million jobs and exports of $10 billion in the IT industry,” he asserted.

He expressed hope that the current figure of 0.15 million jobs in the industry could easily be increased. “I see a bright future for our industry, which is producing top-quality software,” said Bashir.

“We are meeting the IT ministry on behalf of Pasha – the chamber for IT in the country – to get officials to refocus on the sector,” said Bashir.

Commenting on the resignation of former IT minister Babar Awan, he said, “The minister was an important, focal point of the industry.”

“I have heard that the United States Agency for International Development (USAID) is providing funds and a data centre will be created in Islamabad,” he said while talking about the e-government programme.

Replying to a complaint that large organisations in the country, such as banks, did not give projects to local firms, he said that there were up to 60 large companies in Pakistan which needed tried and tested software.

He, however, explained that there were at least 10,000 small companies that would not be able to afford services of large international firms and would have to adopt local software solutions, which would help the economy grow.

Pakistan’s exports were projected at an estimate of USD 24 billion, highest figure so far. Moreover, the remittances in Pakistan are expected to touch USD 11 billion this year and growth rate is estimated at 4.1%, according a report in The News:

ON the invitation of Punjab Board of Investment and Trade (PBIT), world renowned expert on investment promotion Carlos Bronzatto spoke at a seminar “Investment Promotion 101”. Carlos Bronzatto is visiting Pakistan in the capacity of the Chief Executive of the World Association of Investment Promotion Agencies (WAIPA).

Chief Executive Officer, PBIT Saadat Muzaffar, welcomed the high level participants from government and the private sector and said that despite the global economic slowdown, Pakistan was poised to make an economic recovery. He said Pakistan’s exports were projected at an estimate of USD 24 billion, highest figure so far. Moreover, the remittances in Pakistan are expected to touch USD 11 billion this year and growth rate is estimated at 4.1%. He also said that Carlos Bronzatto’s visit signalled a very positive sign from the international community to support Pakistan’s aim to increase FDI in the country.

Chief Executive WAIPA Carlos Bronzatto delivered a comprehensive way forward for Pakistan to promote its investment opportunities. During that session, he provided insight about the investment evolution, core functions and key concept.

He particularly talked about the use of information to influence investment decisions, incentives for long-term development, the targeting of investors and the integration of large global corporations with local stakeholders and communities.

Punjab Board of Investment and Trade is a strategic member of the steering committee of WAIPA which represents South Asia in this committee.

PBIT is the first Investment Promotion Agency from Pakistan to be a part of this international organisation. WAIPA was created in 1995. It was established as an Association under Swiss law. WAIPA Members include 244 national and sub-national agencies from 162 different countries. Through its wide range of activities, WAIPA provides the opportunity for investment promotion agencies (IPAs) to network and exchange best practices in investment promotion.

KARACHI: The export of chemicals and pharmaceutical products increased by 43 percent in first quarter of 2011-2012 July, September as compared to same period last year, Federal Bureau of Statistics FBS data said.

Pakistan exported chemicals, pharmaceutical products worth $257 million during July-September 2011 as against $179 million in July- September 2010. Chemicals products export rose by 39.76 percent, increasing from $82.40 million to $115.17 million. Pharmaceutical products export stood at $29.10 million as against $33.90 million in same period of last fiscal.

China has become Pakistan's largest trading partner, replacing the US which slipped to third place, according to Dawn News:

China has emerged as Pakistan’s largest trading partner replacing the US and is being closely followed by the UAE. The US has slipped to third position on the list of the top ten trading partners.

Germany and the UK occupy eighth and 10th slots respectively and Japan is no more on the ten top list. The latest rankings based on the FY11 statistics indicate that Pakistan is doing much more trade within Asia and its reliance on American and European markets is on the decline.---------Emergence of the new rich in China and expansion in middle-income consumers in the Middle Eastearn countries opened up new opportunities for Pakistan to boost trade with all these nations. Moreover, the trade gravity played its part in redirecting our external trade towards South and East Asia including Malaysia and Indonesia.

Small wonder then, that in the last fiscal year seven out of the top ten largest trading partners of Pakistan were all Asians—China, the UAE, Saudi Arabia, Kuwait, Malaysia, Afghanistan and India. And all of them except Saudi Arabia and India showed an improvement in their respective rankings, in a small span of three years.

“Interestingly whereas recession in the US and troubled political relationship between Islamabad and Washington affected growth of bilateral trade, the surge in the US troops in Kabul aimed at winding up the military operation there increased our exports to Afghanistan,” according to a senior official of Trade Development Authority of Pakistan (TDAP). That explains, at least in part, why Afghanistan’s seventh slot among our largest trading partners in FY11.

Our exports to Kabul totaled $2.3 billion in FY11. This growth trend is continuing and in the first five months of this fiscal year, exports to Afghanistan have touched a billion dollars mark-----------------------Business leaders say Pakistan’s top bilateral trade partners are changing not just because of economic miracle of China and overall better average economic growth in Asia than in America and in Europe. “Increase in imports from China, for example, is also related to the Chinese investment projects in Pakistan part of which are scaling down American influence,” said a former president of the Federation of Pakistan Chambers of Commerce and Industry.-----------India and China are two of the six countries on the list of the top ten trading partners with whom Pakistan runs trade deficits.----------The other four are the UAE, Saudi Arabia, Kuwait and Malaysia. Whereas Pakistan imports large amounts of costly fuel oil from the first three countries, it runs trade deficit with Malaysia primarily due to huge import bills of palm oil.------------With four countries out of the ten largest trading partners, Pakistan boasts of a trade surplus. These are the US, Afghanistan, Germany and the UK. “Whereas it is easier to retain Afghanistan as a major export market and it is encouraging that Bangladesh has emerged as a billion-dollar market for our products, the US, Germany, the UK and other European countries are equally important for sustained growth in overall exports,” remarked chairman of Pakistan Bedwear Exporters Association Mr. Shabbir Ahmad. He and many other exporters believe that normalisation of political relationship with the US and continuing of efforts to win trade concessions in European Union are required for keeping exports on a high growth trajectory.

UAE Ambassador Eissa Abdullah Al-Basha Al-Noaimi said Monday Pak-UAE relations would be taken to the new heights as the leaders of the two brotherly counties are showing keen interest in this.

Federal Minister for Commerce Makhdoom Amin Fahim has said that the trade and business ties of both the countries are satisfactory but the scope of enhancing them does exist and the leadership of the two countries is sincerely trying to expand the same.

They were addressing the gathering of representatives, CEOs, directors of the UAE investment companies and joint venture investing corporations in Pakistan here Monday evening. The meeting provided the two countries officials’ rare opportunity to interact with each other.

Ambassador Eissa Al-Noaimi told the guests that current bilateral trade between the two countries is US $7.6 billion while 27 companies of Pakistan and UAE are working in joint venture. The volume of the business in joint venture is US $21 billion. The UAE firmly believes in the principles of importance of strengthening economic coordination with Pakistan as the later presents suitable environment ready for investment. The fruit of this interest was holding the conference on ‘promotion investment in Pakistan’ in March 2010. The ‘UAE Expo Magnificent 7’ held in Karachi and it was honoured and inaugurated by Prime Minister Syed Yusuf Raza Gilani while the UAE delegation was led by Sheikha Luba Bint Khalid Al-Qasmi, the UAE foreign trade minister.

Ambassador Al-Noaimi recounted that the UAE investment covers all sectors such as aviation, navigation, banks, real estate and energy. In aviation sector, it extends its facilities to different cities in Pakistan to serve the passengers and for cargo. This also applies to the navigation sector. The banking sector actively contributes in developing Pakistani society while the real estate and energy sectors have effective role also.

All those sectors serve the human and economic development in the brotherly country Pakistan. “We might not exaggerate if we describe this relationship as model one, thanks to its solid foundation and due to its divaricating so that to cover different fields and according to agreements and memorandums of understanding which are looked by joint commission headed by both foreign ministers of the two countries. We consider the meeting of the businessmen and officials of both countries would furnish common ground to discover more investment opportunities and to discuss investment related topics,” the ambassador said.

Ambassador Eissa Al-Noaimi said the distinguished relationship and the contacts among the officials of the two countries and the diplomatic delegations here and the UAE are fully ready to solve any issue which might be faced by the companies and investors and if such matters occurred then it would be a natural issue usually happens during investment in countries. “One of my goals that I would be contributing during next stage to establish joint committee especially for businessmen of both the countries. The history of relationship among the businessmen is spread over decades due to religious, geographical, cultural connections and mutual interests in this excellent relationship,” Ambassador Al-Bash Al-Noaimi added.

The ambassador said the UAE leadership including President Khalifa Zayed Al-Nahyan, Prime Minister Muhammad Rashid Al-Maktoum, and Foreign Minister Abdullah Al-Nahyan are taking personal interest in enhancing ties with Pakistan in all spheres. A documentary was also shown on the occasion that depicted the marvelous all-round development of the UAE. The U-fone chief executive Abdul Aziz Khan, honorary counsel of the UAE in Lahore Chaudhry Munir Ahmad were also present on the occasion.

Ambassador of South Korea, Choong Joo Choihas has said that Tuwairqi Steel Mill (TSML) potentially rich to serve as a catalyst for industrial growth in Pakistan.

During a visit to TSML, the Korean diplomat said “South Korean steel giant POSCO, has so far invested US$ 15 million in this project, and contemplating to invest more. Owing to the strategic geographical location of Pakistan, in central and south Asia, this joint venture appears to be vital initiative in the global business operations of POSCO,” he said.

Choong Joo also said that South Korea is willing to invest in different sectors, particularly steel sector, which offers huge growth opportunities spurred by government’s investment-friendly policies

He said, that scores of South Korean companies are operating in energy, petrochemical and infrastructure industries, while many more have plans to invest in future, provided law and order situation improves in Pakistan. He further informed, that around 10,000 workers from Pakistan are currently serving in Korea.

Young-Ho Yoo, the Resident Director of POSCO said that the new plant is now on the verge of completion and is expected to commence operations by the end of the second half of the current year. “After completion of the first phase, we are looking forward to examine the feasibility for the second and third phase of the project, as its forward and backward integration,” he remarked.

Earlier, Zaigham Adil Rizvi, Director (Projects), TSML gave a detailed presentation about the project and shared statistics about the global steel industry. “There is a consistent growth in the production of DRI over the years, owing to environment-friendly production process and consistent quality of the product,” he said.

He was of the view that currently, Pakistan was among the countries that relied mostly on imports, when it comes to heavy mechanical structures and engineering goods. “By producing high-quality steel within Pakistan, we can manufacture such equipment locally by value addition, with the help of downstream industries,” he concluded.

The plant spreads over an area of 220 acres at Port Qasim, Karachi and employs the world’s most advanced DRI (Direct Reduction of Iron) technology of the MIDREX process, owned by Kobe Steel of Japan. The first phase of the project, that constitutes a DRI plant, to produce 1. 28 million tons of high-quality DRI, is now on the verge of completion.

POSCO is the world’s third-largest steel maker, by market value, and Asia’s most profitable steelmaker. It has been the bedrock of Korea’s industrial development over the past 40 years. The Korean shipbuilding and automobile industries primarily are dependent on POSCO for their steel requirements. POSCO produces some 33.7 million tons of steel products each year. Currently, POSCO ships those products to over 60 countries around the globe, satisfying some of the world’s most quality-sensitive manufactures.

The American Business Council, that includes the Pakistan units of Coca-Cola Co. and Cisco Systems Inc., plans to invite 10 U.S. companies a year to invest in the South Asian nation and take advantage of rising consumer demand.

“Branded product penetration in Pakistan is so low that the potential for growth is immense,” Saad Amanullah Khan, president of the council, said in an interview in Karachi today. Up to 80 percent of American companies operating in Pakistan, especially technology and consumer goods companies, had a “good year” in 2011.

Pakistan needs to increase overseas investment to help meet an economic growth target of 4.3 percent in the year that began July 1. Foreign direct investment declined 50 percent to $813 million in the year ended June 30, according to the central bank.

The council plans to double its membership of U.S. companies from 63 in the next five years and increase the total investment to $1 billion from $663 million, said Khan, 51, who is also chief executive officer of Gillette Pakistan Ltd.

Pakistan agreed this month to end a seven-month ban on North Atlantic Treaty Organization trucks crossing its territory on the way to Afghanistan, easing tensions with the U.S., its biggest trading partner. The routes were reopened after U.S. Secretary of State Hillary Clinton apologized for the killing of 24 Pakistani soldiers in a November border strike by American helicopters.

Pakistan’s credit rating was lowered deeper into junk status by Moody’s Investors Service on July 13, which cited dwindling currency reserves and political instability. The $200 billion economy faces the fastest inflation in Asia, lingering power blackouts, an insurgency on the Afghan border and reduced aid flows.

ADB in its recent report titled ' Asian Development Outlook Supplement July 2012' notes: "Based on the government's latest survey, real private consumption in Pakistan is expected to grow in the fiscal year 2012 by a significantly higher rate than in fiscal year 2011, supported by inward remittances."

The report argues that foreign investment is declining in the both India and Pakistan while the inflation in South Asian region is projected to be 7.8 percent of GDP in 2012 while for the FY 2013, it is projected at 6.9 percent of GDP.

According to the ADB report, South Asia is expected to grow by 6.2 percent in 2012 and 6.9 percent in 2013. South Asia economic growth will moderate as the weaker global environment reduces exports and investment inflows. Although somewhat offset by stable inward remittances, widening trade deficits have led to the depreciation of most currencies in the sub-region and have helped drive inflation up since

early 2012. While manufacturing growth is slowing in most countries, domestic conditions vary among major economies.

The report says that weak global demand has also affected trends in international commodity prices. In general, they are projected to decline throughout 2012 and 2013. The trend in the international price for oil and food suggests prices for 2012 and 2013 to fall below 2011 levels.

Economic growth in developing Asia moderated during the first half of 2012 as slower growth in the US and euro area reduced the demand for the region's exports. Worries over the economic strength of important developing economies have also emerged recently. Growth in developing economies will be slow in the second half of 2012. Unwinding policy stimulus in some countries has also contributed to the region's weaker first half performance.

I agree with you that our country desperately needs more investment. So I thought that we should go over the various potential sources of funds for the sorely-needed investments and see how important each has been to our economy in the past.

(2) The remittances were rapidly rising because Oil prices were rising. The rising oil prices set-off a Gulf boom. This created more jobs for Pakistani worker & led to rising profits for Pakistani businessmen in the Gulf countries.

(4) Conversely, the decline of Oil prices in later Eighties led to a Gulf bust. This caused profits to decline for Pakistani businessmen and Pakistani workers got laid-off. This, naturally, led to decline of remittances.

(5) After adjusting for inflation, remittances & Oil prices track each other almost perfectly.

(6) Then as Oil prices rose from 2002 onwards, remittances again rose very rapidly.

(8) The 2003-2007 boom was driven by BOTH, rising FDI as well as rising remittances.

(9) The relative weight of internal savings declined during the (consumption-led) 2003-2007 boom.

(10) The "lost decade" of the nineties was when the economy was principally driven by internal savings, with very little foreign money coming in.

A key point to note here is that our remittances are strongly-linked to the fortunes of the Arab/Gulf countries, as a full 2/3 of our remittances come from there. Rising oil prices creates a Gulf boom and our remittances increase (in real terms). Falling Oil prices leads to a Gulf bust and remittances decrease (in real terms).

The same graphs for India are shown below. The graphs clearly show that India's economy is fundamentally different from ours in a structural sense. One key difference immediately visible is that their economy has *always* been driven principally by Internal Savings. All the others (FDI, FPI, Remittances & Aid) are actually relatively less important to their economy.

Specifically, as shown in the graphs, during the Cold war (pre-1992 period) Internal Savings accounted for 91% (on average) of their funding sources for investment, with remittances at 5% and Aid contributing 4%, with negligible FDI & FPI (Soviet-Model Closed Economy).

After the post-Cold-War reforms in 1992, their economy is *still* principally driven by internal savings (now on average 84%), with Remittances contributing 9%, FDI & FPI contributing 5.5% and Aid contributing 1.5% (all on average).

India's Sources of Funding for Investment in Current US$:http://1.bp.blogspot.com/-W4D38FEk3is/UDv_fj-AiaI/AAAAAAAAAGg/Iof5nJ--o_Y/s1600/ScreenHunter_27+Aug.+27+19.07.jpg

Relative Important of Various Sources of Funding for India:http://3.bp.blogspot.com/-t2tEUNW2Re0/UDv_hOLwqhI/AAAAAAAAAGo/gYstS4Ixk8k/s1600/ScreenHunter_28+Aug.+27+19.07.jpg

Is India overly-dependent (like we are) on Oil-price drive Gulf Countries for its remittances?http://1.bp.blogspot.com/-hwtzQ7gqqqQ/UDv_jXByY_I/AAAAAAAAAG4/F_5Dw8MlKDA/s1600/ScreenHunter_30+Aug.+27+19.07.jpg

You say, probably copy-pasted from somewhere, "Gross domestic product (GDP) is calculated by adding up public and private consumption, investments and net exports (exports-imports). Some of the major world economies, most notably Germany and China, are led by exports, while others, such as United States, United Kingdom, India and Pakistan, are primarily domestic consumption driven"

--------------------------------

The first part of the statement is correct as a matter of definition.

The second part, however, is an often-repeated slogan based on misunderstandings of macroeconomics by superficial media-promoted analysts & so-called “talking-head” financial experts.

Here are the facts that follow from the very fundamentals of Macroeconomics—

Lotte Pakistan PTA Ltd. (LOTPTA), the pure terephthalic acid producer whose shares have declined by a quarter this year, plans to spend as much as $20 million within the next two years on its plant to trim costs amid concerns annual profit will decline.

Lotte, which started commercial operations of a $50 million power plant in July, plans to modernize its machines, Chief Executive Officer Asif Saad said in an interview in Karachi. The power plant may help cut energy costs by 50 percent, he added. Lotte’s PTA is used to make polyester staple fiber, which is in turned used to make clothes.

The company, part of South Korea’s Lotte Group, reported a 95 percent slump in consolidated net income in the third quarter to 47.4 million rupees ($495,000) compared with the same period a year ago. The company posted a consolidated net loss of 247 million rupees for the nine months started January compared with 4.6 billion rupees profit a year earlier.

“This has not been a good year for us,” Saad said. “You have to appreciate this is a cyclical commodity business and we are going through a down cycle.”

The Lotte group is considering expanding investment in Pakistan to $2 billion in the next five years into areas such as retail and real estate, Saad said.

“Cost cutting will have an impact on their exports, but it will be very marginal,” Raza Hamdani, a research analyst with Shajar Capital, said. “I expect the company to make a marginal profit in 2013 provided they cut costs and regionally prices rise.”

Lotte, which got all its sales from Pakistan last fiscal year, has to sell its product at international prices linked with China, Shajar Capital’s Hamdani said. Lotte is asking Pakistan’s government to increase duties on PTA imports to 7.5 percent from 3 percent now.

Lotte Pakistan’s shares that have declined 24 percent this year compared with a 40 percent gain in the KSE 100 Index.

If we go back in time to the 1971 war, we see that massive expenses of repatriating Pakistani POWS & civilians stranded in Bangladesh and the heavy cost of repaying US war-loans took a heavy toll on the economy.

The total investment rate dropped to an all time low of 11.44% of GDP in 1973 as the costs of the war were absorbed.

Historically, that has been considered the worst year for investment since record keeping began in the sixties. You can see the 11.44% investment-bottom in 1973 here--

Ironically, the same WB chart shows that FY 2011 investment rate was 11.80% of GDP.

That is abysmally low, but still a tad 0.35% higher than our 1973 nadir of 11.44% GDP.

So I just wondered what the latest (FY12) investment rate was, since the WB chart above ends in FY11.

Luckily, I was able to find this information at the Finance Ministry. Here it is in Table 1.6 on page 13--http://www.finance.gov.pk/survey/chapter_12/01-GrowthAndStabilization.pdf

Ouch! GOP is reporting that the FY12 Investment rate was at 10.50% of GDP.

We have just broken the 1973 record for the lowest level of Investment! We are now at the lowest investment rate we have EVER recorded. It is astonishing, to say the least, to see that we are doing worse today than we did in 1973 when we had to absorb the devastating costs of the lost-war.

Do you see any correlation? Here is a graphical comparison:http://alturl.com/3bwth

I can see a correlation between the reign of Zardari beginning with the GFC of 2008 and the falling rate of investment. However, there does not seem to be any obvious link between terrorism, which peaked in 2009, and the falling investment rate, which is still continuing its downward spiral.

As I have been saying, we need to SAVE in order to invest. Domestic savings are the KEY to long-term sustainable high growth rates. Bangladesh and India seem to understand this, while our Paindoos keep running around with a begging bowl.

QUOTE: "Currently, infrastructure investments in India are funded mostly out of >LOCAL< savings that hover around 35% of gross domestic product."

We need to SAVE more in order to be able to sustainably invest. This is exactly what I have been saying.

QUOTE March 08, 2013:

SAVINGS AND INVESTMENTS Apart from the relative ease in availability of external resources, other factors also help explain Pakistan's dismal savings performance. Political leadership has rarely emphasised the importance of sacrifice and savings for long-term development. Indeed the governing elite have often set high standards of conspicuous consumption. At a more basic level the low measured savings rate reflects low confidence in the future. Indeed the real savings are understated because of considerable flight of capital. The high savings rate during 2002-04 partly reflected returning capital flight as political stability seemed to be assured and investment climate improved considerably. In addition, for long periods the high population growth rate resulted in Pakistan having a dependency ratio (the ratio of dependent children to working age population) of 0.9 compared to 0.7 in India and 0.5 in China. Finally, for most years since mid 1980s, general government savings have been significantly negative (in many years as high as 3 percent of GDP) as stagnant or slowly growing tax revenues have not been able to cover government current expenditures in most years. The low 'available' savings are reflected in persistently low level of gross fixed capital formation. After a recovery during 2005-08 from the low level reached in 2000, fixed investment as a percentage of GDP has fallen in 2012 to the lowest level in more than three decades.

Here's an ET story on GSP+ status for Pakistan's textile exports to EU:

KARACHI: Textile tycoons, government officials and financial analysts all converge on one point that the grant of European Union’s GSP Plus status to Pakistan is going to spark investment, create jobs and give a big boost to Pakistan’s economy in coming years.A long wait has come to an end as Pakistan has qualified for the generalised scheme of preferences, better known as GSP Plus, of the 28-nation European bloc.The EU parliament on Thursday approved the preferential status for all the countries that had applied for special concessions on duties.One of the biggest beneficiaries of the greater market access and duty concessions would be the textile industry of Pakistan that exported over $13 billion of products in the last fiscal year, constituting more than half of total exports worth $24.6 billion.

“This is the biggest news for Pakistan’s economy in recent years,” Gul Ahmed Textile Mills Executive Director Ziad Bashir said, referring to the inclusion of Pakistan in the list of countries that won the GSP Plus status.Bashir, like other businessmen associated with the textile industry, has praised the government for effective lobbying and successful diplomacy.GSP Plus, which will come into effect from January 2014, would attract new investment in the textile sector, leading to hiring of more workers in coming years.“I think the GSP Plus will at least give a 10-15% boost to textile exports because of new investments in machinery, efficient energy systems, etc,” said Bashir.This positive news has not come as a big surprise. The government and private sector have been eagerly waiting for voting in the EU parliament, especially after Pakistan got majority vote in the EU’s International Trade Committee in the first week of November.Under the scheme, textile exporters can sell most of their products to EU states at concessionary rates of duty or without any duty, making the goods cheaper for European importers. Duty concessions will be for four years up to 2017.According to industry officials and initial details coming from Europe, the tariff lines covered under the GSP Plus are around 6,000, accounting for 91% of total tariff lines. It is expected that Pakistan will benefit from almost 2,500 tariff lines, of which around 900 are related to the textile sector, brokerage house Topline Securities said in a report.“We believe textile exports can be increased by at least $500 million to $1 billion in the next 15 months,” All Pakistan Textile Mills Association (Aptma) Central Chairman Yasin Siddik told The Express Tribune. Aptma is looking to create 300,000 to 400,000 new jobs in the next one year.

As Indian pharmaceutical companies prepare to increase the volume of their trade in Nigeria, it is becoming clear that they would have to compete companies from their closest neighbour, Pakistan, which have given the signal that they are keen to take a slice of Nigeria's growing market in the health sector as well as pharmaceutical products.

The Pakistani companies plan to achieve this by establishing hospitals and partnering with Nigerians to establish pharmaceutical companies, Pakistan's High Commissioner to Nigeria, Muhammed Saleem, has said.

"We are also looking at having joint ventures in opening up hospitals. We are not looking at Nigeria as a market, we are looking at Nigeria as a partner and that is our intention in this part of the world", Saleem said.

As part of the move, the Nigeria-Pakistan Pharma Investment Forum (NIPIF 2014) was held in the Nigerian commercial capital, Lagos, last month.

About 50 investors from Pakistan attended the forum together with two each from Jordan, the United Arab Emirates (UAE) and Ghana. This shows how serious Pakistani companies are in their bid to make an inroad into Nigeria.

Saleem said Pakistan, currently exporting $200 million of pharmaceutical products, was planning to increase that to $500 million. Out of the $200 million, trade with Nigeria accounts for only $7 million.

He said his country wanted to produce quality drugs and medicines in Nigeria which would be made available to hospitals locally.

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About Me

I am the Founder and President of PakAlumni Worldwide, a global social network for Pakistanis, South Asians and their friends. I also served as Chairman of the NEDians Convention 2007. In addition to being a South Asia watcher, an investor, business consultant and avid follower of the world financial markets, I have more than 25 years experience in the hi-tech industry. I have been on the faculties of Rutgers University and NED Engineering University and cofounded two high-tech startups, Cautella, Inc. and DynArray Corp and managed multi-million dollar P&Ls. I am a pioneer of the PC and mobile businesses and I have held senior management positions in hardware and software development of Intel’s microprocessor product line from 8086 to Pentium processors. My experience includes senior roles in marketing, engineering and business management. I was recognized as “Person of the Year” by PC Magazine for my contribution to 80386 program. I have an MS degree in Electrical engineering from the New Jersey Institute of Technology.
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